The new tax law has many changes in it, in my opinion, the most significant of which is the elimination of the Personal & Dependent Exemptions and the increase in the Standard Deduction.

Let me explain:

First, the new law kept the seven tax brackets, but changed the rates AND the bracket ranges, basically lowering each bracket’s rate, a little, and changing the maximum income for each bracket:

Old New
10% <$18,650 10% <$19,050
15% $75,900 12% $77,400
25% $153,100 22% $165,000
28% $233,350 24% $315,000
33% $416,700 32% $400,000
35% $470,700 35% $600,000
39.6% >$470,701 37% >$600,001

In essence, the rates are all 2% or 3% lower, except for the 10% starting rate and the 33% & 35% brackets, and the maximum income in each new tax bracket is higher, except for the 33% bracket.  What this essentially means is, with lower bracket rates and higher bracket ceilings, folks will be paying less in taxes!  I know, the Democrats screamed “this is a tax break for the rich”; however, except for the elimination of the Estate or “Death” Tax, I just do not see it.

The bill also:

  • Doubles the Child Tax Credit from $1,000 to $2,000 per child, for folks with children;
  • eliminates the tax penalty for not having health insurance after December 31, 2018, and allows folks to deduct out-of-pocket medical expenses that are more than 7.5% of their Adjusted Gross Income as opposed to the previous 10%;
  • limits the amount of State & Local Property, Income and Sales Taxes that can be deducted to $10,000 from the past’s being fully deductible; and
  • caps the amount of mortgage indebtedness on new home purchases from the previous $1,000,000 to $750,000; however,

the BIG ONE is it eliminates the Personal & Dependent Exemptions and basically doubles, for all intents and purposes, the Standard Deduction!  Now, if folks think back, everything we heard when the program was being sold to us was: “For a family of four”.  In essence, anyone with more than 3 children (two if you’re single), you’re getting screwed!

For example:

For a single tax payer, the Standard Deduction previously was $6,350, raised to $12,000 in the new law.  Now previously, that single tax payer could deduct $4,150 for each additional household member.  If this single Tax Payer has 2 additional household members, it could previously deduct and additional $8,300 ($4,150 X 2), which would have given this individual a floor of $14,650 before any tax was due.  With the new law’s Standard Deduction of $12,000, meaning it pays tax on any income over $12,000, it pays tax on an additional $2,650 ($14,650 – $12,000), which is an additional tax of $265 ($2,650 X 10%)!

For Married Taxpayers, the Standard Deduction was $12,700, raised to $24,000.  The Married Taxpayers previously could deduct $4,150 for each additional household member, the same as the Single Taxpayer.  So, if these folks have 2 additional family members, they would still be “good” seeing that, in the past, they would have began paying tax on income over $21,000 (2 X $4,150) + $12,700), $3,000 below the new Standard Deduction of $24,000; HOWEVER, if they have 3 additional family members, these folks wouldn’t begin paying tax until their incomes surpassed $25,150 (3 X $4,150) + $12,700), but with the new tax law, they begin paying tax after their incomes surpass $24,000, so they pay tax on an additional $1,150, or an additional $138 in tax ($1,150 X 12% … they also went into a higher tax bracket)!  Now it should be clear why they kept on saying “for a family of four” when they were selling us the new law.